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Economic empowerment of previously disadvantaged people can be an important tool in improving their livelihoods and reducing poverty. A successfully implemented empowerment policy can give such people the opportunity to become more economically active by providing them with skills and enterprise development. This in turn helps to create jobs and to develop sectors possibly under - or not developed. This CAI discussion paper reviews some economic empowerment programmes in Africa and discusses issues central to their implementation and impact. It briefly highlights the Black Economic Empowerment (BEE) and the Indigenisation and Economic Empowerment (IEE) programmes in South Africa and Zimbabwe, respectively.
The essence of economic empowerment programmes
The need for economic empowerment programmes in African countries stems from the historical marginalisation and exclusion of Africans in the mainstream economy stemming from the colonial era. The colonial historical context of the countries in Southern Africa witnessed a period of protracted economic development and created a human capital that is largely unskilled, uninformed and restricted from meaningful participation in the economy. Empowering these previously disadvantaged groups exposes them to the development pillars enabling them to become agents of economic change while facilitating their escape from abject poverty.
The origin, imperative and the need of having empowerment policies within Africa, particularly, Southern Africa is based on the reality that an economy can flourish if it can meet the needs of its citizens and their enterprises in a sustainable and developmental manner.(2) As such, economic empowerment can play a vital role in human and economic development only if the political, economic, social or legal systems build on the full potential of all persons and communities across the length and breadth of a country.
The essence of economic empowerment lies in spreading the benefits of economic growth to the majority, making economic growth premised on inclusion sustainable. The majority of these previously disadvantaged groups is not comprised of people interested in owning shares in companies,(3) but consists of those mainly focused on getting good jobs (employment equity), improving their skills (skills development), starting and running their own businesses (preferential procurement and enterprise development) and simply living a better life. In this way, economic empowerment programmes are concerned about benefits of economic transformation and empowering the previously disadvantaged people by means of interventions beyond just selling shares.
The case for South Africa: Black Economic Empowerment (BEE)
The Black Economic Empowerment Act (BEE) of 2003 was put in place in South Africa to address wrongs of the past, particularly those perpetuated by the deliberate marginalisation of Black South Africans (4) under the apartheid regime, by bringing the previously disadvantaged groups into active economic participation. The Government defines BEE as “an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the numbers of black people that manage, own and control the country’s economy as well as significant decreases in income inequalities.”(5) BEE aims principally to increase black management and control of businesses in the economy, and to diminish economic inequalities among and within the races.(6)
A generic scorecard is used to measure a company’s empowerment progress in terms of: direct empowerment through ownership and control of enterprises and assets; management at senior level; human resource development and employment equity; and indirect empowerment through preferential procurement, enterprise development and corporate social investment. The Government seeks to have 40% of shares on the JSE Securities Exchange owned by black business through this empowerment initiative.(7) The implementation of BEE in South Africa attracted widespread attention on its definition, motives, and how the Government seeks to achieve these empowerment objectives. It is commendable that the Government has been consistent in its quest to deliver the message on BEE by consulting all the stakeholders in the corporate sector and other policymakers in coming up with sustainable targets.
The case for Zimbabwe: The Indigenisation and Economic Empowerment (IEE)
The Indigenisation and Economic Empowerment Act (IEEA), 2007 (Act 14/2007) was gazetted in March 2008. In terms of the IEEA, “empowerment” refers to the creation of an environment that enhances the performance of the economic activities of indigenous Zimbabweans (8) into which they would have been introduced or involved through indigenisation. All existing and new businesses with a threshold of US$ 500 000 are obliged to declare their shareholding status through a prescribed form. Under the empowerment regulations, foreign-owned firms are required to cede a significant stake to local blacks by 2015 and those failing to comply risk losing their operating licenses.(9) At least 51% of every public company and any other business should be owned by indigenous Zimbabweans.(10) The Government also reserved some economic sectors (11) investment by local Zimbabweans and entry into these sectors requires approval from the Government.(12) The legislation also provides preferential procurement from local companies, just like South Africa’s BEE preferential procurement provisions.
The IEEA in Zimbabwe has and continues to face more attention than BEE in South Africa mainly because of how the programme is being implemented, its motives and the beneficiaries. There is a lot of scepticism around this empowerment programme in Zimbabwe following the incidences concerning how the land reform project was undertaken as a way of redistributing the land to the locals (given that the country was heading for elections).
The controversy surrounding economic empowerment programmes
Around the world, there is controversy surrounding the concept, nature and implementation of economic empowerment programmes. In the case of South Africa, the concept of “Black Economic Empowerment” means what the phrase says. In Zimbabwe, the concept of “Indigenisation” has the same connotation in its meaning. These terms can sound divisive and can be seen as referring to a zero sum game, suggesting that empowerment programmes are there to empower previously disadvantaged people at the expense of the previously advantaged. The use of these terms, “Black” or “indigenous” continues to raise different images in the minds of many people, depending on which side of the economic divide they stand. Instead, these terms are used from a policy perspective referring to the previously disadvantaged communities and individuals that were subjected mostly to exclusion in the historical past of each country.
There is also remarkable concern with regard to the nature of BEE for instance. BEE has been viewed as a front for “Black Elite Enrichment” in that beneficiaries enrich themselves while the rest of the country remains in poverty. In South Africa, the implementation of BEE provoked controversy, partly because it has benefited mainly politically connected individuals (13) rather than the mass of the previously disadvantaged, and partly because South Africa’s corporate sector continues to be dominated, managed and owned by the minority whites.(14) Many white companies sold their shares to influential blacks in the ANC, who can push for policies to the benefit of capital. They did not want to risk their value by taking on unknown black partners. It is then evident that the controversy around the empowerment programme continues, especially that the players (both previously disadvantaged and previously advantaged) can manipulate the system. Ordinary citizens, who ought to benefit from the programmes, fail to do so as a result of the ills of the past. Many who must benefit are considered to be unfit partners because they lack the skills and experience.
Another area of concern relates to the question of promoting the empowerment of local citizens and at the same time, not to scare away domestic and foreign investment. In South Africa, after the publication of the mining sector charter, there was uncertainty on the part of overseas investors and the market capitalisation of the mining sector dropped due to this uncertainty. The same applies to Zimbabwe following the unanimous decision taken by the Cabinet in December 2010 giving the Government 100% control of all alluvial diamonds in the Marange fields. Ultimately, this sends a bad message and instils fear to investors that if the government can lay a 100% claim on diamonds, the next target could be gold, platinum, or the manufacturing sector. No international investors will be willing to take up an indigenisation offer where they will become minority shareholders and effectively have no authority in their investments.
Controversy around empowerment programmes intensifies when political leaders use them as a political tool. In such circumstances, the key question that remains to be answered is that, “Are the objectives of these programmes still to empower the previously disadvantaged groups, or is it becoming a political tool to become more popular, (within the electorate), yet only the few in the political circles benefit in the name of empowerment?” Controversially, what may be regarded as “politicising” the empowerment programmes remains a challenge. At the ZANU PF conference in December 2010, President Mugabe openly reiterated that “…companies originating from these countries (Britain and America) would be taken over for indigenisation …and it is time to take reciprocal measures (15) against illegal sanctions.”(16) President Mugabe also emphasised that investors who do not want to come on the terms of the empowerment programme (17) must not bother coming into Zimbabwe.(18)
Such comments by the influential figures in the country bring a lot of controversy with regard to the motive of having the empowerment programme in the country. It seems the programme has become a tool to avenge the ills of the past. Surely this becomes an exception in the empowerment drive in Africa and does not suggest that the Government is still underpinned by the empowerment objectives, instead personal scores (at the expense of the majority of the population) (depending on whose side you belong to – politically). Similarly, in South Africa, for the greater part of 2010, the ANC Youth League has been vocal about the nationalisation of the mines as a way of intensifying the empowerment of the Black South Africans. This sparked and continues to provoke a lot of commentary in the media, business and the Government.
Another area that is worth mentioning relates to the problem of “fronting.” This is a situation were the previously disadvantaged figureheads embark on fronting (19) to access state contracts, on the basis of the provisions of the preferential procurement. In Zimbabwe, some local businessmen are conniving with foreigners by agreeing to be “fronts” for them to benefit without facing the regulations of the Act.(20) These circumstances suggest that the Government and policymakers in each country should brace themselves in the fight against corruption and greed, which has become a disease in many African Governments. Despite the controversy, economic empowerment remains an essential and vital tool for economic growth and development.
Looking ahead: Sustainability of economic empowerment programmes
Based on the discussion above, economic empowerment is central in developing the mechanisms, pathways and people to enable a real possibility of accessing the mainstream economy. This involves a win-win situation for both blacks and whites and is not regarded as a way of taking wealth from the whites. Policymakers and all stakeholders must encourage participation and nurture the participation of blacks while accommodating whites to work together in the development of the economy. Retaining the experience, expertise and knowledge of the white person and augmenting those traits in the black person is vital for the success of the empowerment programme. This creates room for “Human Economic Empowerment” for both whites and blacks.(21) Economic empowerment programmes need to be implemented within a framework where a consistency approach, appropriate flexibility to respond to different economic and enterprise conditions and the ability to measure the progress on implementation has to be fostered. With a consistent approach, it is important that when ownership is transferred to black ownership, innovative ways of financing the empowerment deals must be easily accessible to support effective empowerment transactions.
There are a number of lessons that African countries can learn from countries like Malaysia,(22) India and Sri Lanka.(23) Malaysia’s experience with its New Economy Policy (NEP) that covered the period 1970 to 1990 is the most well-known example and it highlights how to implement an economic empowerment programme aimed at ensuring that economic wealth is broad based.(24) For a successful implementation of empowerment programmes, the economy needs to grow so that the pie can be shared among the different ethnic groups. However, for Zimbabwe, this remains a challenge with unresolved political problems (the Government of National Unity, the Constitutional Referendum, political violence, among other things) hanging over the economy.
For South Africa, the situation is much better with the positive results in the economy being evident since attaining its democracy in 1994. The implementation of these African economic empowerment programmes is not an outright experiment because South Africa’s Broad-Based BEE is arguably a replication of the successful Malaysian affirmative action programme.(25)
However, Veloso argues that the model on which South Africa’s Broad Based-BEE is based, is possibly no longer suitable in the current globalized world. The South African Government must therefore continue to investigate alternative models and experiences to achieve the same BBBEE targets, which is to increase black people’s participation in the economy. This empirical study suggests that the BEE policies are not acting to attract foreign direct investment into South Africa, and in fact, they might be causing loss of investment.(26)
It is imperative for policymakers to review the BEE programme and the framework policies regulating foreign direct investment, with the intention of transforming them into a competitive advantage for South Africa. The same study also suggests that policies such as Ownership Equity, Management Control and Employment Equity are especially impacting on companies’ willingness to bring new investments into South Africa. It is in this light that empirical studies on empowerment need to be done on a continual basis for South Africa and Zimbabwe so that their impact can be tested overtime. However, to say the less, Zimbabwe in particular needs to resolve and clear the political cloud that is covering the country at the moment. In so doing, Government policy and its direction can be clear to all.
If not implemented properly, empowerment programmes have the potential of persuading investors to take their investments to other favourable destinations. This negatively affects the much needed foreign direct investment intended to create employment and economic growth. In the extreme case, a Government may turn a country into the least attractive investment destination depending on how the empowerment programme is implemented and how enterprises are expected to comply with the legislation. In its current state, the empowerment programme in Zimbabwe may not be able to yield the intended objectives due to the interference of the Government and politicians. In South Africa, the BEE project, despite the controversies around it, it is evident that there are some positive and transparent results.
Continuation of inequality in African countries can ultimately hinder economic development and all, blacks and whites, lose out because the economies will continue to perform below their full or long-term potential with all the natural resource endowments.
(1) Contact Anthony M Makwiramiti through Consultancy Africa Intelligence: Africa Finance and Economy Unit.
(2) Mihe Gaomab II, 'The relevance of Black Economic Empowerment (BEE) to the implementation of Competition Policy and Law in Namibia: Is it an Imperative', 26 May 2010, http://www.fesnam.org.
(3) Global Business Holdings, 'The essence of the Broad Based Black Economic Empowerment', http://gbholdings.org.
(4) African, Indian, Chinese and Coloured people, women, youth, disabled persons and rural communities.
(5) 'Rationale for BEE', Department of Trade and Industry (DTI): South Africa, 2008, http://www.thedti.gov.za.
(6) 'The progress of Broad-Based Black Economic Empowerment in South Africa – Executive Report prepared for the Presidency, the DTI and the President Black Advisory Group', Department of Trade and Industry (DTI): South Africa, 2008, http://www.thedti.gov.za.
(7) 'Black Economic Empowerment in South Africa – An Overview', MBendi, 2010, http://www.mbendi.com.
(8) “Indigenisation” refers to the deliberate involvement of indigenous Zimbabweans in the economic activities of the country, to which hitherto they had no access, so as to ensure the equitable ownership of the nation’s resources. The term “indigenous Zimbabwean”, refers to any person, who before the 18th of April 1980 (the country’s independence day), was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person, and includes any company, association, syndicate or partnership of which indigenous Zimbabweans form the majority of the members or hold the controlling interest.
(9) Watson, M., 'Zimbabwe’s Indigenisation and Economic Empowerment Act: A historical moment for the African Continent', 2010, http://www.minorityperspective.co.uk.
(10) Sokwanele.. 'The Indigenisation and Economic Empowerment Act (14 of 2007)', 2010, http://www.sokwanele.com.
(11) These sectors include agricultural production of food and cash crops, transport (buses, taxis and car hire services), retail and wholesale trade, barber shops, hairdressing and beauty salons. Others are employment agencies, estate agencies, valet services, grand milling, bakeries, tobacco grading and packaging, tobacco processing, advertising agencies, milk processing and provision of local arts as well as the marketing and distribution of these items.
(12) Kangondo, F., 'Zimbabwe: Indigenisation Regulations Gazetted', The Herald, 10 February 2010, http://allafrica.com.
(13) Most of the major BEE deals have been in favour of a small group of black shareholders and these include Saki Macozoma, Patrice Motsepe, Cyril Ramaphosa, and Tokyo Sexwale who have appeared repeatedly in the different deals. The four BEE magnates symbolised the country's new corporate empowerment elite. Since 2005, however, a notable feature of BEE deals has been the emergence of new black consortia headed by individuals who also possessed strong ANC connections, including ANC office bearers as well as former provincial premiers, parastatal heads, and government ministers.
(14) Tangri, Roger and Southall, Roger 'The Politics of Black Economic Empowerment in South Africa', Journal of Southern African Studies, 34:3, 699 – 716, http://www.informaworld.com.
(15) President Mugabe emphasised that, ““Why should we continue to have companies and organisations that are supported by America and Britain without hitting them back? The time has come for us to revenge and one way of (doing this) is for us to use the IEEA. That Act gives us authority to take over the companies. We can begin with 51%, but in some cases we must read the riot act and say this is only 50% but if you do not lift the sanctions we will take 100%.”
(16) '2011: A Watershed Year for Zimbabwe', Sunday Mail, 2011, http://www.zimpapers.co.zw.
(17) The President was also quoted saying that,”Some would say we will lose investment. Which investment? If people don’t want to come on those terms then let them stay out, they are not good for us.”
(18) 'Stay away, Mugabe tells indigenisation critics', ZimOnline, 1 October 2010, http://www.zimonline.co.za.
(19) 'Black Economic Empowerment in South Africa – An Overview', MBendi, 2010, http://www.mbendi.com.
(20) 'Empowerment, opportunity for Zimbabweans to have real stake in their own economy', Zimpapers, 16 November 2010, http://www.zimpapers.co.zw.
(21) Mihe Gaomab II, 'The relevance of Black Economic Empowerment (BEE) to the implementation of Competition Policy and Law in Namibia: Is it an Imperative', 26 May 2010, http://www.fesnam.org.
(22) Mandla, B., 'BEE and Malaysia’s NEP: A comparative Study', Master’s Thesis, University of Stellenbosch, 2006, https://scholar.sun.ac.za.
(23) Sabbagh, D. 'Affirmative Action Policies: An International Perspective. Background Paper for Human Development Report', UNDP, 2004, http://hdr.undp.org.
(24) Murphy, A., 'Affirmative Action in a deeply divided Society: Lessons for South Africa from Malaysia’s Successful Redistribution Policies', 2005, http://www.allacademic.com.
(25) Veloso (Jr), V., 'The Impact of Broad-Based Black Economic Empowerment of Foreign Direct Investment Inflows into South Africa'. A Master of Business Administration thesis, GIBS, University of Pretoria, 2008.
Written by Anthony M Makwiramiti (1)